My Investment Checklist

The importance of checklists is to minimize errors, which is heavily practiced in fields where a minute error could cause death / injury such as aviation and medicine.

To apply it to investing also makes sense, and this is the checklist I will go through whenever I invest:

[Portfolio Decision]

  1. Are there opportunities in the market worth investing in? (If Yes, move to 2.)
  2. Have you slept on the decision? (If Yes, move to 3., If No, sleep on it for at least 1 night)
  3. Is there enough cash on hand to invest in these opportunities? (If Yes, move to 5., If No, move to 4.)
  4. Are there existing investments that are over-valued / fair – valued or offer smaller margin of safety and shows profits? (If Yes, sell and move to 5., If No, don’t buy)
  5. Is the number of stock purchases from the amount of cash on hand and raised from 3. less than opportunities, make one stock purchase / month? (If Yes, make one stock purchase / month, If No, move to 6.)
  6. If the cash is below 30% of net worth, dollar cost average within 6-12 months. If cash is above 30% of net worth, dollar cost average within 18 months.
  7. **Each stock purchase cannot be more than 6.25% weighting for stock diversification reasons**

[Stock Decision]

  1. Is it a Dividend Growth stock with at least 5 years of Dividend Growth history? (If Yes, move to 2., If No, move to 5.)
  2. Does the Dividend Growth stock possess a Wide Moat, a competitive advantage intact within next 20 years (If Yes, move to 3., If No, don’t buy)
  3. Does the Dividend Growth stock have a payout ratio below 2/3? (If yes, move to 4., If No, don’t buy)
  4. Does the Dividend Growth stock’s dividend yield + dividend growth exceed my conservative discount rate? (If Yes, buy., If No, don’t buy)
  5. Is the stock trading at or below 2/3 NCAV? (If Yes, move to 6., If No, move to 9.)
  6. Does the Net Net stock have 5 years of profits? (If Yes, move to 7., If No, don’t buy)
  7. Does the Net Net stock have 5 years of book value growth? (If Yes, move to 8., If No, don’t buy)
  8. Does the Net Net stock have 5 years of dividends? (If Yes, move to 9., If No, don’t buy)
  9. Does the Net Net stock have 5 years average Debt to Equity below 1? (If Yes, buy, If No, don’t buy)
  10. Is the stock a trustworthy earnings / book value compounder that doesn’t pay dividends? (If Yes, move to 11., If No, don’t buy)
  11. Is the Compounder stock trading at or below 10 year P/E and/or P/B? (If Yes, buy, If No, don’t buy)

[Updated as of September 26th 2015]

Not advice. No offer. Do not rely. May lose value. Risky. Conflicts hidden/obscured. (Borrowed from Terrence Yang‘s Disclaimer on Quora)